Flash IP France - Professional rental of furnished property : the possibility of transferring under the Dutreil scheme

News flash - 4/14/2016

The activity of professional rental of furnished property (LMP) benefits from an attractive tax system with respect to income tax and, under certain conditions, the wealth tax (ISF). There are still doubts about the possibility of transferring shares of a company engaged in such an activity under the “Dutreil” scheme. The application of this scheme would allow donees or heirs to be liable for gift/inheritance taxes on only 25% of the property value. In a case before the committee on tax law abuse (CADF), the authorities considered the activity of professional rental of furnished property to be eligible for the scheme regardless of whether the activity is accompanied by hotel-related services.

Drafting completed 11/04/2016



Subject to meeting certain conditions (entry in the trade and companies register + gross rental income > €23,000 including taxes + revenues in excess of pensions and other household professional income), the activity of rental of furnished accommodations is eligible for several benefits :

  • The income is taxable in the category of industrial and commercial profits (BIC), eligible for the depreciation of buildings and movable property over their normal useful life. These accounting expenses greatly reduce the taxable rental income compared with a rental of unfurnished property;
  • The share of losses not derived from depreciation may be applied without limitation to other income, which may be of particular interest during the initial years when the registration fees are amortised;
  • Capital gains realised by a professional renter of furnished property may be eligible for an exemption if the activity is conducted for more than five years and revenues do not exceed €90,000 in the two financial years preceding the sale;
  • A specific exemption scheme exists for the ISF (wealth tax). However, persons already engaged in an occupation are not eligible for it in practice.



Subject to various conditions, the "Dutreil" scheme allows the securities of operational companies to be transferred by donation or succession, with the benefit of a 75% reduction on the taxable value without any liability for transfer tax. Eligible companies must conduct an industrial, commercial, craft, or agricultural activity or provide professional services.

The activity of rental of furnished property is civil in nature in private law, but from a tax point of view, with regard to income tax, it is commercial in nature since it falls within the scope of the industrial and commercial profits (BIC) scheme. Is this tax qualification enough to make securities of companies engaged in professional rental of furnished property eligible for the "Dutreil" scheme?

In this respect, the view of practitioners is shared, as the tax authorities do not explicitly authorise the application of the Dutreil scheme to the activity of professional rental of furnished property (LMP) in its comments on the "Dutreil" scheme. However, part of the doctrine considers that if hotel-related activities accompany the rental, the activity of professional rental of furnished property would likely be eligible for the "Dutreil" scheme. In practice, three of the following services should be provided: breakfast, regular cleaning of the premises, provision of linens, and receiving of customers.

In a case before the committee on tax law abuse (CADF - Opinions 2015-07 to 09 of 06.11.2015), the authorities challenge, on the grounds of abuse of rights, the operation in which taxpayers transfer properties within their private assets to a limited liability company (SARL) conducting an activity of rental of furnished property in order to then be able to transfer the shares with the benefit of the 75% reduction.

However, the authorities do not dispute the operation on the grounds of the very nature of the activity of rental of furnished property. In a note attached to the CADF's opinions, the authorities specify that they consider the activity of rental of furnished property for residential use (LMP) to be eligible for the Dutreil transfer scheme. In this case, the rental was not accompanied by services.

Hopefully this position will be taken by the authorities in its comments published in the BOFIP.


The trust and succession planning team for France is available to help you.

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